AdWords works through an auction model whereby advertisers are first assigned an Ad Rank to establish their position in the auction. The a second step takes place where the cost per click is determined.
How it works
Ad Rank is determined by:
Quality Score X Max CPC (bid) = Ad Rank
Advertiser A - Max CPC of .55 and Quality Score of 1.7 = assigned Ad Rank .93 = position 1
Advertiser B - Max CPC of .65 and Quality Score of 1 = assigned Ad Rank .65 = position 2
Advertiser C - Max CPC of .30 and Quality Score of 1.5 = assigned Ad Rank .45 = position 3
There is then a second step where the actual cost per click is determined. This is done by taking your Ad Rank and dividing it by the Quality score of the advertiser ranked above you.
Advertisers B - Ad Rank of .65 divide it by A’s Quality Score of 1.7 – .65 / 1.7 = .3823529 or .38 cents.
.38 is what Advertiser A has to pay + 1 cent to cover the higher position over Advertiser B for a total of .39 cents.
Take C’s rank of .45 and divide it by B’s Quality Score – .45 / 1 = .45 cents.
.45 is what Advertiser B has to pay + 1 cent to place it above C’s position for a total of .46 cents
This process repeats until the end of the auction where the last bidder pays the minimum bid required to be active in the action.
Contributed by: +Kim Clinkunbroomer
Owner, Clink Digital Marketing, Google Partner, AdWords Top Contributor 2006 to present. Our goal is to provide our Clients with the highest level of service to help reach their goals and grow their businesses. Contact: email@example.com 847-361-3057 http://www.clinkdigitalmarketing.com
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